When will an arbitral tribunal be deemed to have exceeded its jurisdiction?

In the recent decision of Quanzhou Sanhong Trading Limited Liability Co Ltd v ADM Asia-Pacific Trading Pte Ltd [2017] SGHC 199 involving the enforcement of a foreign arbitral award, the Singapore High Court (“Court”) held that an arbitral tribunal has not exceeded its jurisdiction as regards its determination on the governing law of a contract.

The Court found that the issue on governing law was properly submitted to the arbitration and the tribunal had acted within its terms of reference in deciding the issue. As such, even if the tribunal had decided wrongly on the governing law of the contract, it would not have exceeded its jurisdiction.

Background

The Plaintiff entered into a contract to purchase corn from the Defendant (the “Contract”). A dispute arose as to the quality of the corn supplied. The dispute was referred to arbitration in Beijing, China under the auspices of the China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules.

The arbitral tribunal (the “Tribunal”) gave an award ordering the Defendant to pay the Plaintiff the sums of US$777,957.41 and RMB 4,223,702.69 with interest (the “Award”).

The Plaintiff obtained an order for leave to enforce the Award against the defendant (“Enforcement Order”).

The Defendant filed a summons (“Summons”) in Court seeking, amongst other things, to set aside the Enforcement Order.

Concurrently, the Defendant also filed an application to set aside the Award at the Beijing Intermediate People’s Court, which was promptly dismissed.

The assistant registrar (“AR”) dismissed the Summons but ordered a stay of execution of the Enforcement Order pending appeal on condition that the Defendant provided security in the sum of the damages awarded under the Award. The Defendant furnished the said security and appealed against the AR’s decision.

Issue

The key issue is whether the Tribunal had exceeded its jurisdiction if it had made an error as to the governing law of the Contract.

Section 31(2)(d) of the International Arbitration Act (Cap. 143A, 2002 Rev Ed) (“IAA”) provides that the court may refuse enforcement of a foreign award if “the award deals with a difference not contemplated by, or not falling within the terms of the submission to arbitration or contains a decision on the matter beyond the scope of the submission to arbitration”.

Section 31(2)(d) of the IAA is worded similarly to Article 34(2)(a)(iii) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). Art 34(2)(a)(iii) applies where an arbitral tribunal improperly decides matters that had not been submitted to it or fails to decide matters that had been submitted to it. By way of section 3 of the IAA, Art 34(2)(a)(iii) of the Model Law has the force of law in Singapore.

The Defendant’s submissions

The Defendant applied to set aside the Award on the basis that:

the Award contained a decision on a matter beyond the scope of the submission to arbitration under (s 31(2)(d) of the IAA);

enforcing the Award would be contrary to Singapore’s public policy (s 31(24)(b) of the IAA).

Before the Tribunal, the Parties had argued that different governing laws were applicable to the Contract. The Defendant argued that the Contract was governed by English law under the GAFTA 88, a standard form contract produced by the Grain and Feed Trade Association. The Plaintiff argued that PRC law was applicable as it was the law most closely connected to the Contract.

The Tribunal found that only one section of the Contract was governed by English law, whilst the rest of the Contract was governed by PRC law.

The Defendant did not dispute that, in general, errors of law or fact made by an arbitral tribunal is not a sufficient ground for setting aside an award. However, the Defendant sought to draw a distinction here as the issue related to the governing law of the Contract.

According to the Defendant, an error by the Tribunal in relation to the governing law of the Contract would cause the Tribunal to exceed its jurisdiction by disregarding the Parties’ express agreement as to the governing law. The Court is therefore at liberty to review the Tribunal’s decision and to set aside the Award if the Court found that the Tribunal’s decision was wrong.

The Court’s decision

The Court dismissed the Defendant’s appeal.

Justice Chua Lee Ming (“Chua J”) found that the Tribunal would not exceed its jurisdiction just because it came to a wrong decision on an issue within the scope of the Parties’ submission to arbitration. There is no reason why an issue as to governing law should be treated differently from other issues submitted to arbitration.

Chua J cited Quarella SpA v Scelta Marble Australia Pty Ltd [2012] 4 SLR 1057 (“Quarella”) in support of his decision. In Quarella, the plaintiff similarly argued that the tribunal’s decision on governing law was wrong and that by failing to apply the law chosen by the parties, the tribunal had gone beyond the scope of the arbitration. The court in Quarella rejected the plaintiff’s arguments, holding that the plaintiff had based its application entirely upon its disagreement with the tribunal’s interpretation of the choice of law clause. The court in Quarella held that the dispute did not engage Art 34(2)(a)(iii) of the Model Law.

Agreeing with the reasoning in Quarella, Chua J held that in substance, the Defendant was arguing an appeal against the Tribunal’s decision on the governing law of the Contract. This did not engage section 31(2)(d) of the IAA.

The Defendant’s alternative argument that enforcing the Award would be contrary to public policy under section 31(4)(b) of the IAA was dismissed as the Court found that the Tribunal did not exceed its jurisdiction.

Comment

This decision clarifies that issues relating to the governing law of the contract will not be treated differently from other issues that are submitted to arbitration by parties.

In determining whether an arbitral tribunal has acted in excess of jurisdiction, the key is whether the tribunal is acting within the scope of the parties’ submission to arbitration. As long as an issue falls within the scope of the arbitration, the tribunal’s decision, even if manifestly wrong, will not cause it to exceed its jurisdiction.

The similarities between s 31(2)(d) of the IAA and Art 34(2)(a)(iii) of the Model Law means that setting aside applications made under either of these provisions are likely to be decided on similar, if not identical principles.

As held in previous cases, errors of law or fact made by an arbitral tribunal will not be a sufficient ground to set aside an arbitral award. This decision is another example of the high threshold required to be met before the Singapore courts would set aside an arbitral award. This reflects the local courts’ strict adherence to the principle of minimal curial intervention and accords well with Singapore’s status as an arbitration-friendly jurisdiction.